TICKY FULLERTON: What do you make of these drastic cuts, up to 20 per cent of Government spending we're told, in Britain? What will it do to the economy?

DAVID BLANCHFLOWER: Well, the announcement hasn't actually been made yet - it's expected on June the 22nd. It's going to take a little time to be implemented. I think these draconian cuts are going to be very serious. They're going to, at best, put the UK economy into a double dip.

Quite likely, actually, it'll be into the Great Depression Two because it's very hard to see how any recovery's going to come because all the growth, all the employment growth that we've seen, is driven by public sector stimulus. There's no evidence at all that firms are investing or hiring.

So this looks to be driven by ideology and dogma and is opposed by virtually all economists around the world. Nobel Prize winners, all sorts of economists think that this is lunacy and we're going to see very severe contraction in the economy.

This is not a good day for the UK.

TICKY FULLERTON: You say 'at best' it will lead to a double dip recession. Is the new Prime Minister, David Cameron, then, causing unnecessary panic?

DAVID BLANCHFLOWER: Absolutely. I've written a number of things saying, first of all, it doesn't make much sense for a British minister to be actually talking down the economy and scare mongering. Confidence is very weak at the moment. It's not a good idea to turn it down, if you like. I think they should be building confidence.

The worry, I think, is that this does seem to be doctrinaire and the question you'd ask is ‘well, is there anything in the data that would actually make them turn? Supposing you started to see output falling, would they reverse those cut?’ and the way they've presented them it appears not.

So it appears they're driven by dogma, you believe, in the public sector being bad, rather than what's best for the economy. And I worry down the road that, take out the public sector and the private sector will collapse around it.

So this really looks like the 1930s again and in the 1930s exactly what happened, double dips in the United States and a war came to prevent the continuation of the Great Depression. So I think we are ... this is really economic madness.

TICKY FULLERTON: The other side of this argument, because you're painting an incredibly gloomy picture, is that, the other side is that, the UK is not Greece and the sheer scale of the debt problem on the other side is surely one that needs to be addressed.

I mean credit agency Fitch has said that there will be a 70 billion pound interest bill on the debt in 2014 and that net debt is just going to go on growing, isn't it?

DAVID BLANCHFLOWER: Well I think you need ... certainly you need to get a plan to deal with the deficit. My view is that that should be dependent upon a series of gateways. Once the economy starts to recover then you can pay off that debt.

What has actually happened is that Government have actually been rather bad at forecasting the scale of the deficit. It's actually been less than they thought. It doesn't appear that slashing and burning necessarily will solve your deficit problem. If it raises unemployment, lowers output, it actually could be much worse first. And then secondly, supposing you did actually lose that AAA rating, I'm not suggesting it would be a great thing to do, but actually the likelihood is, if you look at other countries like Italy for example, four notches below the UK, they're still borrowing money at pretty low rates.

So people are talking about the crisis in the markets but actually there isn't. The UK, Australia and many governments around the world are borrowing money at very, very low, long run rates of interest.

So scare mongering from the markets and scare mongering from a government doesn't necessarily make sensible economic policy. It might be really bad for the man in the Clapham omnibus or on the bus in Sydney.

TICKY FULLERTON: So when does one put canes back in the box? I mean these ... this good economic news that you would talk about - what are the sort of triggers that you would think about?

DAVID BLANCHFLOWER: Well, a trigger that I've thought about would be, well, the UK's seen something like 6 per cent drop in output. Let's say we set up a plan and you say you will deal with the deficit once half of that output, let's say, has been restored. Well, we've seen about 0.7 per cent. The UK dropped 6 per cent. You have to see real recovery taking place. You gradually start to take out the public sector and let the private sector step in to its place.

If you take things out just instantly and say 'away you go,' the danger is that private sector firms die at the same time. So you have to take a long-run strategy. Why necessarily do we have to pay it off by 2014?

This is a once in 100-year event. Pay it off over a rather longer time period but get the economy growing again before you start to slash and burn. Slash and burn will be disastrous.

TICKY FULLERTON: The US treasury secretary, Timothy Geithner, seems to agree with you. He's very worried about growth and he urged the G20 finance ministers to consider further stimulus. But he was out in the cold, wasn't he?

DAVID BLANCHFLOWER: Well, I think I do agree with Geithner's position. I think Larry Summers in the US government has been saying the same thing and if you read the comments from Bernanke and the US Fed they've been saying the same thing.

You need to keep the stimulus going. There's talk more in the US that they're going to do that. The worry in the US were the job numbers this week which actually, they jumped a bit but that's mostly because of census worker, private sector growth was very small. And the US led and I think the Europeans, particularly, haven't really understood that if the US isn't growing - they're not going to grow either.

This wind, this tsunami that started in the US blew around the world. If the US isn't recovering everybody else should take note and I think Geithner and if US Government have got it right and they're talking now about more stimulus, not less.

TICKY FULLERTON: Which is right. David Blanchflower, thank you very much for talking to Lateline Business.